After you’ve gone through the securities litigation process, you want to move on with your life. But have you thought about how Uncle Sam will view your settlement? There are certainly instances where settlements are taxable. Keep reading to learn more about securities settlements and taxation.

The ‘Origin of Claim’ Doctrine

As complicated as this may seem, the origin of claim doctrine is pretty straightforward. Essentially, the plaintiff should be put into the same position that they would have been in had the misconduct in their case never occurred. What exactly does this mean for you? Well, the settlement you receive should be taxed the same as it would have been taxed if you never illegitimately lost out on money, to begin with.

Let’s look at a few examples. Maybe you sued a former business partner for lost profits. Keep in mind that any recovery related to those damages would be taxable. This is because the majority of profits are taxed. So if that money was earned the normal way, they would have been taxed by the Internal Revenue Service. Now let’s consider a case on the other side of the spectrum. Recently, the physical property of your business sustained major damage. In this scenario, compensation is not taxable. This is because all the money for repairs would be needed to get the business back to where it was prior to the time of the misconduct. Therefore, no taxes would be owed related to those capital assets.

Here are three things to know about securities settlements and taxation:

  1. Lost interest and lost gains are taxable – This can get a bit tricky. Try to think of it this way: If you are recovering compensation that would have been taxed originally, then that compensation will also be taxed. A clear example of this is the recovery of lost interest.
  2. Recovery of a capital asset is not taxable – Remember that the basis of your investment qualifies as a capital asset. This means you own it outright and it’s not subject to any more taxation. A scenario here would be if financial advisor drained your entire investment account because they made unauthorized trades. Rest assured that any settlement coming out of the loss would not be taxed because all you want to do is get back into the spot you would have been in before the misconduct took place.
  3. Note what has already been claimed on your taxes – This is a big one. If you claimed any investment losses on your taxes in previous years, the IRS is going to have something to say.

How Our Securities Litigation Attorneys Can Help

The law firm of Sadis & Goldberg is here to help you recover losses from investment misconduct. If you have a potential securities arbitration claim and are in need of experienced counsel, please don’t hesitate to contact us.

Our lawyers have expertise in a number of areas, including the following:

Speak to securities litigation attorney now.